The National Governors Association chair and vice chair wrestle with the red-blue divide.

National Governors Association Chair Mary Fallin, the Republican governor of Oklahoma, and NGA Vice Chair John Hickenlooper, the Democratic governor of Colorado, sat down recently and talked about health care, energy, the difficulty of setting a common NGA course while red and blue states are diverging so sharply—and the legalization of marijuana in Colorado and its influence on the kind of businesses and residents willing to relocate there. An edited transcript of the conversation follows.

We are seeing a sharp divergence in states with Democratic and Republican governors. How does that affect the NGA's ability to operate?

Fallin: I think there's a healthy respect between our governors that we understand there will be things that we will just agree to disagree upon. But on those things that we can come together and agree upon, we can get some great things done.

Where do you find the most common ground now?

Hickenlooper: Health care is the classic divisive issue. And yet every governor wants better-quality health care for as many of our citizens as possible, and we want it at the lowest possible cost. So let's not get into a battle about the Affordable Care Act or specific legislation. But let's say what are those places in Medicaid or in Medicare where we can find better quality for less money, and how do we share that in such a way that each governor can use the benefits?

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Isn't that ignoring the elephant in the room? Are you comfortable with states diverging as much as they are on so many fundamental issues?

Hickenlooper: States have always diverged. And certainly we are in a period of great, great divergence. But is the country worse off? I don't know. Are we absolutely certain that Democrats are right, that this is the right way to go? Maybe the Republicans are right. Maybe a more localized approach will be better. Our form of government in this country forces us to prove that out.

Fallin: As governors, we look at other states for best practices. We've had 52 different meetings this year within the NGA and our staffs to come together to discuss what we can and what we can't do.

When you look at improving postsecondary attainment, what are the keys?

Fallin: My initiative [this year] is about workforce competitiveness and educational attainment levels. We've laid out a very aggressive program to look at what the needs are in our businesses, to look at our pipelines of education and our pathways to prosperity to be able to find those high-wage jobs.

Are there common strategies applicable state to state?

Hickenlooper: Sure. [For example,] Governor Fallin's talking about looking at community colleges and [forging] a closer connection between what different industries need in terms of training and job preparation, so that kids who finish those programs have a job waiting for them. I think it's also fair to look at the overall higher-education system. [One thing] we all have to wrestle with is that kids graduate from, say, the University of Michigan and move to Tulsa to get an oil and gas job, or they move to Denver. So there's no [incentive] for the states to put that money in and invest in those people, because they're so global. So we're trying to figure out: How do you get the self-interest of the states to align with that of those individuals wanting an education? Also, how do you get more transparency, more accountability? Eighty-nine percent of universities in this country think they have prepared their students for jobs, and [only] 46 percent of businesses think that people coming from colleges are adequately prepared. It's a disconnect.

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A large number of students start at community college but never finish. Do you see best practices developing on completion?

Hickenlooper: What we're doing right now is [giving] our [higher-education institutions less money] from the state for freshmen than for sophomores, and then they get much more money for juniors and seniors. So it's a progressive incentive to say that the more kids you can keep in your university, the more money you get.

Fallin: We actually set goals in Oklahoma that we wanted to increase our graduation rates by certain numbers. The first year we set that goal, we actually beat it by 71 percent. It's important that you have measurable goals and performance measurements within your educational systems.

What are the key requirements in state and federal policy to maximize the energy boom's potential?

Fallin: I think one of the policies that if not all, then most, governors agree upon: We support an all-of-the-above energy policy, because all of us believe that it's important for America to reach some sort of energy independence. [We need] fair environmental regulations. There are many times that processes become so long in just [issuing] permits that people give up. Or they just don't want to invest, or it costs too much.

Is federal policy inhibiting our ability to maximize the benefits of oil and gas production?

Fallin: At times. [For example,] the Keystone pipeline. I think it would be a great benefit to America, but federal policy is holding that back.

Hickenlooper: There's a basic trust that any industry has with the public, and I think there's been some loss of trust in the oil and gas industry over the last 20 years. The industry recognizes that and is working aggressively to really rebuild that trust. Appropriate regulation is not a small group of people deciding what the rules are going to be, but an open and transparent process. An affluent society is going to constantly demand cleaner air, cleaner water, and that's going to continue. So how do we do that in such a way that we put the least burden on our industries as possible?

The governor of Washington, living through the national sweepstakes with Boeing deciding where to build its next manufacturing plant, said he wished states were not competing with each other by offering these big incentive packages. Is a nonaggression pact possible?

Hickenlooper: You'd get everybody but Texas, I think.

Fallin: I'm one of those people who believes in the free market and letting the marketplace work itself. So if I can create in Oklahoma a business climate that is more conducive to investing and doing business, it's all fair in competition.

Is it possible we'll go on indefinitely having large numbers of people signing up for Obamacare in Colorado, and people in other states thinking it's the wrong way to go?

Fallin: Different states have different budgets—they have different constitutions.

Hickenlooper: Certainly, [the split] will persist for a while. One of the big pushes I got when we expanded Medicaid was a bunch of our employers said, "I need my employees to have some sort of reliable health insurance." It's not just fast-food restaurants and call centers; it's also small manufacturing businesses. One of the real questions is whether states that didn't expand their coverage to many people who are working—whether their businesses are going to come back to Governor Fallin and say, "Hey we want to get in." Or whether they are going to look at us and say, "Hey, you spent all this money, and they're not healthier, and we think you made a mistake."

States are moving in very different directions on social issues like gay marriage and gun control. Does this affect who wants to live there or locate a business there?

Fallin: Yes.

Hickenlooper: No.

Fallin: That's the beauty of America. We're a diverse nation, of diverse ideas and diverse people. We have companies that moved [to Oklahoma] because they liked the fact we're a right-to-work state, or they liked that we support the Second Amendment. There may be other people that may want go to [Colorado] because they like the Rocky Mountain high. [Laughter.] We all get along together.

Hickenlooper: I think for a very small group of people, it does [matter]. The real battle [is about] the cost of a house, the quality of life for their families, the public schools.